Study On The Legal Regulation Of China’s Folk Credit

China’s folk credit has a long history. In recent years, with the adjustment of nationalmonetary policy, the strengthen of risk control mechanisms of commercial bank and thegradual accumulation of personal wealth, the conversion trend of the industrial capital tofinancial capital is growing, and folk credit has become more active. At present, folk credithas become the main financing channels of small and medium-sized enterprises andindividuals and plays a significant role in making up for formal financial institutions,optimizing the financing structure, guiding the adjustment of economic structure andpromoting the rapid growth of economic. However, has not been incorporated into thenational system of financial regulation, the lack of constraints and norms of financialregulations, coupled with the irrational, the drawbacks of folk credit are increasingly exposedto in development, and had a great impact on the development of financial markets, Wenzhoulending, Sihong borrowing, the Ordos lending and the phenomenon that business owners “onfoot” because of less than from the debt well confirms this. Under temptation of the highinterest rates, the folk credit market is gradually evolving into a high-risk financial market. Inthis context, how to make folk credit which has been in a regulatory vacuum to achievesalvation, has been a problem that needs addressing in current financial environment.Folk credit is the main object of study of this thesis. The paper analyzes the negativeimpact of folk credit on China’s economic development and obstacles to development on thebasis of describing the profile of folk credit, and puts forward relevant suggestions. The fulltext is divided into three parts. The first part is an overview. First, the part describes thecurrent situation of China’s folk credit from the size, interest rates, methods, and regionaldistribution of folk credit, and lays the foundation for demonstrating positive and negativeimpacts of folk credit on China’s economy below. Second, the part analyzes the six factorsthat promote folk credit active, including the origins of the social tradition, capital supply anddemand imbalances, the impact of monetary policy, the lure of profit thinking, simplicitydrives and its own role. The second part is the negative impact of folk credit on China’seconomy and obstacles to development, this part analyzes the negative impact on oureconomy in the financial risk, financial order, financial monitoring and financial disputescaused by folk credit, points out three obstacles that folk credit is facing, including legislationbackward, lack of supervision and market’s irrational. The third part is the countermeasures that promote folk credit develop health. The part proposes the corresponding solutions,including Improving the legal system about folk credit, strengthening the regulatory system offolk credit, deepening the reform of the financial system and reforming the related systems.In short, the status of folk credit is determined by its objective necessity of the existenceand development. It is a double-edged sword.It reveals many drawbacks and bringsinconvenience for development of China’s financial markets, while playing advantages ofactive capital market, decentralizing lending risk, optimizing the financing structure, makingup for lack of bank credit, promoting financial services to enhance and so on. Therefore, howto better regulate and develop the folk credit is the key of the problem. While fully playing itspositive role in economic development, we should seize the opportunities of folk credit in thetransition period of the socialist market and greater efforts in the legislative, regulatory andfinancial system reform of folk credit, clear legal status of folk credit and make it open andsun to effectively inhibit its negative effect, promote development of China’s market economybetter and faster.